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Purchasing Employees…

By December 16, 2013January 19th, 2022Buying a Practice

In an asset sale, I blogged about what happens to the employees here. Essentially, under the Employment Standards Act, 2000, unless the purchaser waits 13 weeks after the sale before hiring an employee, the purchase assumes their past length of service for the purposes of giving notice after the sale (i.e. maximum exposure is eight weeks if the past length of service was eight or more years). Again, the only way to avoid the eight weeks of notice (or payment in lieu of notice) is to wait 13 weeks after the sale OR have the selling dentist give the proper notice prior to the sale closing. Note: the latter rarely happens, given that it’s a seller’s market out there.

Now, again still talking about an asset sale, the common law generally assigns any past length of service to a purchaser unless the purchaser presents an agreement on the day of the sale that includes a clause that refuses to recognize past length of services. If the employee doesn’t sign, they can only turn to the seller for damages based on lack of reasonable notice. And the amount of damages is generally one (1) month of notice for up to two (2) years. Alternatively, after the sale, the purchaser and the vendor can jointly give notice to the employees so this allows for a seemingly smoother transition before the introduction of new employment contracts.

So that takes care of an asset sale.

So what happens in a share sale? Well, in a share sale, employees would continue on with a newly amalgamated corporation. It could be argued that an amalgamated corporation is simply a “continuation” of the previous employer, and thus nothing has changed. This would mean that the employee’s past length of service under the Employment Standards Act, 2000 and under the common law (if not waived through a contract) would continue on as before and not start fresh.   If the newly amalgamated corporation were to offer the employees new contracts on the day of the sale, this could amount to dismissal without proper notice and expose the purchaser to a complaint under the Employment Standards Act, 2000 or a lawsuit under the common law. Hence, in the case of a share sale, it’s best to introduce new contracts only after proper notice has been given. The amount of notice will depend on whether the common law has been waived by the employee in an employment agreement. And it will also depend on whether the vendor previously provided notice (which isn’t generally the case in today’s seller’s market).